Kirm Perpar | HTEC Group | Prudent Capital

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February 2023

SELA Webinar��Sustainable Business Entities �& ESG

SELA

The South East Legal Alliance is a regional network of independent law firms advising clients on their operations across South East Europe. The alliance members are amongst the top firms in their jurisdictions, providing the full range of legal and business services to local and international businesses. Our clients benefit from our unified approach, integrated teams and cross-border expertise.

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Agenda

10:00 – 10:20 | First Session:

Legal Aspects by Andrej Kirm and Leon Ribič, Kirm Perpar, Slovenia

Introduction · CSRD · CSDDD · Selected sustainability aspects

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10:20 – 10:40 | Second Session:

Business Perspective by Katarina Urošević, guest speaker, HTEC Group, Serbia

Implementing business sustainability practices from the inside

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10:40 – 11:00 | Third Session:

Researching of Interest/Awareness of Sustainable Business in Serbia by Zoran Pavlović, guest speaker, Prudent Capital, Serbia

Energy efficiency in companies · Biggest obstacles · Benefits of EE business · Source of financing · Advisory assistance programs

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11:00 – 11:15 | Q&A

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Zoran Pavlović�Independent Consultant at Prudent Capital, Serbia�

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Andrej Kirm�Partner at Kirm Perpar,�Slovenia�

Andrej is the Managing Partner of Kirm Perpar. He specialises on Corporate & Commercial, Competition & Antitrust, Real Estate and Aviation Law. Besides general corporate, corporate governance, compliance and regulatory advice, Andrej provides guidance in M&As, share sales, privatizations, strategic partnerships, as well as joint ventures.

Zoran Pavlović is an experienced senior corporate banker with demonstrated history of working in the banking industry. Engaged as independent consultant and owner of consultancy company Prudent Capital since 2018, with main focus on consulting of corporate clients in the area of banking, investments, sustainability, project financing - renewable and real estate projects, sales management, company development and improvement.

Leon Ribič�Of Counsel at Kirm Perpar,�Slovenia�

Leon is Of Counsel with Kirm Perpar. He advises in the field of banking, finance, corporate law (with M&A) and general commercial law. His six years in Viennese banking sector, including a secondment with the largest Austrian bank, and in Vienna-office of an international law firm have given him a broad experience in banking, finance and private equity transactions. Leon has been particularly involved in processing of cross-border syndicated loans with multi-jurisdictional aspects, in sale and processing of distressed loans and in various transactions on investors’ side across the CEE/SEE region.

Katarina Urošević�Chief of Staff and Director of Communications at HTEC Group, Serbia�

Katarina is the Chief of Staff and Director of Communications at HTEC Group. Besides ensuring the company's smooth operations and driving post-merger integration activities, Katarina oversees the Communications' office which supports internal and external communication, marketing operations and visual communications. She joined HTEC with 13 years of experience in science, technology and innovation policy and managing development projects within international organizations.

First Session: ��Legal Aspects | by Andrej Kirm and Leon Ribič�

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PART 1: ESG Essentials�

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PART 1: ESG Essentials (I)

New corporate era?

• Traditional approach: the fundamental purpose of companies is to make a profit; examples in the SEE region are Slovenian, Croatian and Serbian legal system;
• ESG approach: the fundamental purpose of companies is to consider interests of all STAKEHOLDERS (stakeholder theory).

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Definitions:

- corporate sustainability = umbrella term; for many companies it is about doing good and does not require any set conditions;

- corporate social responsibility = embedded management concept where companies incorporate the concerns of key stakeholders into their operations and activities;

- ESG = assessment of companies' sustainability practices by way of more traditional financial measures.

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Idea of suistanability:

- afforestation: when managing the forest an owner has to avoid excessive felling, which would completely destroy the forest substantial part and prevent it from being restored;

- social aspects: the need to eliminate inequality for the benefit of the whole society; industrialist and philanthropist Andrew Carnegie, Gospel of wealth, 1889;

- Finance: Finance is not merely about making money. It's about achieving our deep goals and protecting the fruits of our labour. It's about stewardship and, therefore, about achieving the good society. Nobel laureate for economics, Robert Shiller, Finance and The Good Society, 2012.

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PART 1: ESG Essentials (II)

UN legislation: United Nations Global Compact from 2000, a non-binding act aiming to encourage companies worldwide to adopt sustainable and socially responsible policies and report on their implementation.

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European Union:

- the forerunner on ESG legislation, the "Brussels effect”;

- European Climate Law contains the binding objective to reduce greenhouse gas emissions in the EU to zero by 2050, thereby achieving climate neutrality;

- the crucial role plays the financial industry and sustainable investments are considered as a key component of the EU's ability to achieve the set climate goals;

- How to achieve this? By informing the interested public about the possibilities of investing in a green and clean economy; EU encourages companies to disclose relevant ESG information by publishing it in their annual reports;

- EU impact on other economic sectors: human rights protection in the corporate value chains.

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Our webinar:

• Corporate Sustainability Reporting Directive (CSRD)
• Proposal on the Directive on corporate sustainability due diligence (CSDDD)

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PART 2: Introduction to CSRD�

PART 2: Introduction to CSRD (I)

Initial position:

- Financial industry is widely recognized as carrier of the transformation into a green economy; it redirects financial flows in the direction of green investments and economic sectors that can mitigate the effects of climate change;

- Reporting on ESG related matters is not new, the EU framework for encouraging sustainable investments already include a series of regulatory acts:

1. Taxonomy Regulation - Regulation (EU) 2020 / 852; The regulation on taxonomy (this means classification) regulates the "dictionary" of economic activities that are considered environmentally sustainable;
2. Sustainable Finance Disclosure Regulation - Regulation (EU) 2019 / 2088 (SFDR); the regulation imposes a series of ESG-related disclosure requirements on fund managers, financial advisers and insurance companies in the European Union;
3. Directive 2014/95/EU on Non-Financial Disclosures (NFRD); in force since 2017; already partially covers corporate sustainability reporting.  

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CSRD

• Entered into force on 14 December 2022; new standards regarding sustainability reporting;
• Member States will have to adopt the new comprehensive package of reporting requirements within 18 months upon its entry into force, this means by June 2025

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PART 2: Introduction to CSRD (II)

CSRD scope of reporting: Companies will have to report on (among others):

1. the resilience of their business model and corporate strategy to sustainability risks;
2. opportunities and plans for the company in relation to sustainability;
3. the way in which the company's business model and strategy take into account the interests of the company's stakeholders;
4. the manner in which the company's ESG strategy was implemented; and so on.

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Reporting entities:

1. All large companies (i.e. those that meet at least two of the three criteria: 250 employees, 40 million euros or more in net revenue and a balance sheet total of 20 million euros or more), regardless of whether they are listed on organized EU markets or no; and
2. all listed companies (i.e. those offering securities on regulated EU markets), including small and medium-sized enterprises (SMEs), but excluding micro-enterprises, as all defined in the EU Accounting Directive 2013/34 / EU.

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Reporting timeline:

The first reporting for companies which were not obliged to report according to the NFRD is set in the financial year 2024, this means the reports will be published in 2025.

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PART 2: Introduction to CSRD (III)

New instrument under CSRD: Collective liability for members of the company's administrative, management and supervisory bodies to ensure ESG reporting in their company complies with European requirements; EU and national case law will develop further in relation to ESG collective liability.

Reporting entities in numbers:

- around 49,000 companies organized as PLC or LLC will be obliged to report on ESG under CSRD (under NFRD there are around 12,000 companies with a reporting obligation);

- increase from 47% of the turnover to 75% of the turnover of all companies (LLC or PLC) on the EU internal market.

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Challenges? Market voices: obtaining ESG related data is challenging; what is measured and how it is measured; what criteria to use...

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Future developments?

• by generating new data in their annual reports, companies will provide the public with a sufficient basis for investment decisions;
• the next step will be a wide use of sustainability ratings (ESG ratings), which will become an important measure when deciding to invest in a specific industry, examples in the SEE region: NLB (Slovenia); RBI (Austria); OTP (Hungary).

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PART 3: Introduction to CSDDD�

PART 3: Introduction to CSDDD (I)

Proposal on the Directive on corporate sustainability due diligence (CSDDD); adopted by the European Commission on 23 February 2022

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CSRD is focused mainly on the financial industry, while the CSDDD rules are aimed more broadly and cover also companies in the production sector:

- textile industry;

- agriculture, forestry, fishing;

- food industry;

- production of basic metal products;

- extraction of mineral resources (oil, gas, minerals);

- wholesale trade in mineral resources.

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CSDDD requires companies to identify, prevent, report, address and eliminate potential or actual adverse effects on human rights (HR), the environment and good governance in their value chain.

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Focus on human rights and the environment as determined by international conventions, such as the Universal Declaration of Human Rights.

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Violation of human rights = violation of listed conventions = breach of CSDDD obligations

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CSDDD = minimum standards from which the member states cannot deviate after transposing the provisions of the directive into their legal system.

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PART 3: Introduction to CSDDD (II)

CSDDD is applicable to both (i) European and (ii) non-European companies in the EU internal market:

1. with an average of more than 500 employees + a net worldwide turnover of more than EUR 150 million (Group 1);
2. with an average of more than 250 employees + a net worldwide turnover of more than EUR 40 million + at least 50% of this turnover is generated in one or more sensitive sectors (textile production, agriculture, fishing, food products, extraction of mineral resources, listed above) (Group 2);
3. third-country companies with a net turnover of EUR 150 million in the EU (Group 3);
4. third-country companies with a net turnover of 40 million + at least 50% of their worldwide net turnover was generated in one or more of the above sensitive sectors (Group 4).

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HR and environmental due diligence under Article 4 CSDDD:

1. establishing a "policy of due diligence", this is a material internal policy that is updated annually (Article 5);

2. determination of actual or potential adverse impacts (Article 6);

3. prevention and mitigation of "possible harmful effects" (Article 7) = preventive measures;

4. reduction of the scope of "actual harmful impacts" (Article 8) = curative measures;

5. establishing an "appeal procedure" (Article 9); it is a non-judicial procedure within the company to which different stakeholders may appeal: (i) directly affected individuals; (ii) trade unions, workers' representatives; (iii) non-governmental organizations;

6. monitoring the "effectiveness of their policy and due diligence measures" (Article 10) with regular evaluations at least every 12 months;

7. public reporting (Article 11) – reporting in the annual report on the field of HR.

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PART 3: Introduction to CSDDD (III)

Meta obligation for certain companies: adoption of the ”Corporate Climate Plan”:

• larger companies (Groups 1 and 3);
• obligation to adopt a plan to ensure that the company's business model and strategy are compatible with the transition to a sustainable economy and limiting global warming to 1.5°C under the Paris Agreement.

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ESG HR supervision authority: Establishment of a competent authority within the respective Member State with the goal of ESG supervision in the HR field.

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Sanctions: (1) corrective measures; (2) administrative sanctions (“administrative offence”); (3) monetary fine; (4) civil liability for violation of ESG obligations; indirect partner disclaimer.

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Entities obliged under CSDDD in numbers: CSDDD will affect around 14,000 European companies and around 4,000 foreign companies operating in the EU internal market.

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PART 3: Introduction to CSDDD (IV)

Final considerations on CSDDD:

• compliance with ESG obligations and preparation of new policies: new cost burden, obstructions of the core business?
• the regulation affects larger companies: will regulation regarding SMEs follow?
• the participation of several stakeholders is envisaged, including directly affected individuals and non-governmental organizations; issues of green activism?
• impact on company operations if cooperation with an NGO is not successful from the point of view of these stakeholders - reputational damage?
• risk for protection of trade secrets and risk of industrial espionage?

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CSDDD adoption timeline: the proposal must be adopted also by the European Parliament and the Council of the EU; once adopted the Member States will have 2 years to transpose the CSDDD into their national law; France and Germany as forerunners have however already adopted comparable legislation.

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The issue of human rights in value (supply) chains is already at this stage not negligible – Case KIK

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PART 3: Introduction to CSDDD (V)

• Case KIK (LG Dortmund, Urteil vom 10.01.2019 - 7 O 95/15):

• fire accident at the textile factory of Ali Enterprises in Karachi, Pakistan (!), in 2012;
• 250 people died and at least 4 were seriously injured in the accident, most of the damage and injuries were caused by inadequate health and safety regulations in the factory;
• plaintiffs filed the lawsuit in Germany against the German discount retailer KiK, which had previously admitted to buying at least 70 percent of the textiles produced by the factory in 2011;
• the plaintiffs claimed that KiK was under a duty to provide them with a healthy and safe working environment and that it breached that duty by failing to do anything to prevent the fire and the resulting damage;
• the claim was brought in Germany, but due to international private law aspects the English law was applicable for the case;
• the case was heard in 2018 and ultimately dismissed in 2019 on the basis of the statute of limitations.

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PART 4: Selected aspects: GREENWASHING

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PART 4: Selected aspects: GREENWASHING (I)

Greenwashing

- phenomenon where companies deliberately use or make reference to voluntary ESG standards when manufacturing products;

- companies present their activity as an ESG activity in order to present themselves in a good light to consumers.

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Examples on the market show that greenwashing is not about the real sustainable effects of advertised products (for example, the Dieselgate affair) or if the products however have a certain sustainable effect, this effect is greatly exaggerated in the marketing campaign.

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PART 4: Selected aspects: GREENWASHING (I)

• Case H&M:

• pending class action lawsuit in the US state of New York (CHELSEA COMMODORE v. H&M HENNES & MAURITZ LP), lawsuit was filed in July 2022;
• the manufacturer's clothes are marked with the label of the company's "sustainable profiles", which are displayed on the H&M website and displayed on hundreds of products of the manufacturer;
• the investigation of the profiles showed that they contained false information that did not correspond to the real status of products;
• lawsuit also accuses H&M of exploiting a growing segment of environmentally conscious consumers in its marketing and sales in a misleading way.

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PART 4: Selected aspects: GREENWASHING (II)

• Case ALDI:

• ALDI, a supermarket chain based in Germany, is facing a class action lawsuit in the US state of Illinois (Rawson v. ALDI Inc, No. 1:2021cv02811);
• the plaintiff claims that the company's Atlantic salmon products are misleadingly labelled as sustainably sourced;
• the plaintiff claims that he bought the salmon because of its sustainability label, but in reality ALDI buys fish from industrial fish farms whose practices and methods are said to be unsustainable and harmful to the environment.

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Second Session: ��Business Perspective | by Katarina Urošević�

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HTEC Purpose, vision, mission

Purpose

Vision

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Mission

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We empower brilliant minds to engineer a better future.

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A future where we drive the technology trends that improve lives and shape the businesses of tomorrow.

Our entrepreneurial team works with the boldest companies on the planet. We don’t just solve their challenges. We create opportunities by pushing the boundaries of technology. And turn the implausible into the everyday.

HTEC values

Keep Learning Keep Growing

Act with Empathy and Support

Build trust with transparency

Own your Business

Lead with integrity

Push your limits. Find new ways to maximize opportunities. Then share what you learn, and learn from others – so we all stay on the cutting edge

Check in with colleagues to make sure they’re doing OK. We respect everyone’s backgrounds, differences, and opinions – and care about them as people.

Say what you mean and do what you say. Be open and honest, and always do what you promise – so that we can all rely on each other when we need to. 

Go beyond what’s asked of you and support the team in any way you can. If you spot a way to create better results – do it.

We nourish authenticity and courage to think differently, and we always do the right thing, even if no one is looking. For us, being a good person, trumps everything else. 

Value

Description

Relevant policies

Employment-related Documentation

Code of Conduct and Ethics 

CSR Strategy

Internal communications policy and guidelines

GDPR 

Flexible Hours and Hybrid Work

United Nations Women's Empowerment Principles 

United Nations SDG Action Awards Winner 

​Green Office Space

HTEC is continuously investing into greener A-class office (LEED minimum)

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This strategic decision doesn't only cover energy efficiency and sustainability but also wellbeing of our employees and accessibility.

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In 2022 alone, we invested into almost 20,000 sqm of class A office space in 7 office across SE Europe.

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Latest example: moving our London office into the Black & White Building, London’s tallest mass-timber office (dubbed London’s most sustainable office space)

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CSR Strategy

HTEC Cares is the framework for HTEC CSR activities. In line with our mission to engineer a better future, we are equally focused on what we do and how we act to achieve our goals.

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A. Education ​

“Keep learning, keep growing” “Grow yourself by growing others” ​

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Provide support in the education of children of different ages who come from different socio-economic backgrounds.

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B. Ethical and economic responsibility ​

“Act with empathy and support” “Build trust with transparency” “Lead with integrity” ​

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Make our financial decisions in line with our commitment to do good in engineering and beyond, creating a positive impact on the environment, people, and society as a whole.​

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C. Environment and sustainability ​

“Act with empathy and support" "Own your business” ​

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Reduce HTEC's environmental footprint. ​

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Tree planting actions in Belgrade, Nis, Novi Sad and Subotica (over 500 trees planted)

Cleaning actions in Skopje and Novi Sad

Education program for all employees organized: “Going green: Me and my environment”

Recycling system introduction rolled out in HTEC offices

Plastic water bottles eliminated from all offices

HTEC “Green teams” – 75 employees actively engaged on our environmental strategy

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Environmental impact initiatives

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2022 initiatives:

HTEC Idea Marathon

GirlTHING Tuzla

Girls in ICT Day

International Women’s Day at HTEC

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Women in HTEC:

29% of employees

96,7% women/men salary ratio for the same position

Unique benefits for new mothers

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Women in Tech

We choose to work with clients whose values match our own across industries that we believe bring about positive impact and change globally:

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• Digital product development
• Digital transformation

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In partnership with our clients, we are committed to creating a better future, and this also involves turning down projects that we believe are not “a better future”. 

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Implementing ESG principles on projects

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Engineering a better future

AI-based fetal and maternal telehealth solution�

Wearable telehealth product that helps women and their clinicians measure and monitor key vital parameters of the fetus and mother during pregnancy, labor, and delivery.

+ AI

+ ECG monitoring

+ Prenatal healthcare

SOS mobile application

The application was motivated by the real needs of our colleague from Serbia, who is a member of the deaf community. She is currently unable to contact an ambulance, police or fire department through available communication channels.

The application is primarily intended to enable persons with hearing and speech impairments to contact emergency services, with the possibility to make it available to other people in need who are situationally prevented from speaking  (e.g., domestic violence victims).

The solution is our donation to relevant state institutions of the Republic of Serbia and is developed in partnership with the Ministry of Internal Affairs of the Republic of Serbia and the Belgrade City Institute for Emergency Medical Assistance.

Digital products and the systems that enable them – need electricity 100% of the time

Ecological impact of a single tweet: 0.026g CO2e

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• Tweets published per day: 867 million
• Annually: 316 billion tweets

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Twitter annual footprint amounts to 8,200 tons of CO2e =

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Carbon footprint of an e-mail is 0.3g CO2e

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-For a long e-mail with a PDF or image attachment it can go up to 50g CO2e

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Every hour of video conferencing creates 1kg of CO2. Turning off video and using audio only can reduce carbon impact by 96%.����

What to do? Think bigger, build better

-involve stakeholders in your design process

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-evaluate potential harms (physical, emotional, societal)

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-simplify the user journey – reduce page loads

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-efficient use of images

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-use video content carefully

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-mind the font!

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-storage and longevity (green infrastructure, store what you need, make it work on older devices)

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-accessibility!

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Digital sustainability is the process of applying social, economic, and environmental stewardship principles to digital products, services, and data delivered via the internet.�

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Next steps for HTEC

Inclusivity working group

ESG report 

• An inclusivity working group is initiated with the goal of identifying and discussing potential challenges, proposing solutions and supporting their implementation and monitoring progress.
• Status: In discovery phase
• First annual Inclusion and Diversity report issued in February 2022

• HTEC's first ESG report for 2022 is in the making 

HTEC net zero policy

• Based on first ESG assessment

Third Session: ��Researching of Interest/Awareness of Sustainable Business in Serbia | by Zoran Pavlović�

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Introduction

According to the United Nations Environmental Programme (UNEP), the green economy is an economy whose aim is to improve human well-being and social equity while significantly reducing environmental risks and ecological scarcity. In this type of economy, revenue growth and employment come from public and private investments that reduce carbon emissions and enhance the efficient use of resources.

It is important to emphasize the need for transition from linear economic and industrial model to circular, one that stands for efficient use of resources and raw materials, recycling and reuse of waste.

The benefits of the circular economy are saved natural resources, meaning preserved environment, reduced impact on climate change and more innovative products. Significant initial investments in research, development and monitoring are needed in order to successfully establish a circular economy system.

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The green economy transition and the financing of recovery from COVID-19 is a challenge but simultaneously an opportunity for changing the unsustainable patters of energy and production in Serbia. Many MSMEs are willing to invest in more energy-efficient and environmentally friendly processes, but they require reliable partners in financing their investments and the right regulatory framework. Even when they are aware of the potential of better environmental performance to improve firm’s competitiveness, a lack of appropriate skills and expertise commonly prevents MSMEs from acting upon opportunities.

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Introduction

While the benefits of the circular economy are increasingly accepted, a range of barriers to the transition remain:

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The research

In deciding on the conceptual approach most suitable to reach the study objectives, the team was guided by characteristics of the industry sector, present macroeconomic trends and the status and potential in the field of material resource efficiency.

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Direct interviews were organized with:

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1. eight companies
2. one business association
3. one consulting company
4. 146 member companies of the Chamber of Commerce

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Total sample: 156 companies

Sample structure

To get a viewpoint from the microeconomic level, the consulting team had information obtained in contacts with domestic firms already engaged in circular economy activities.

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Main financial products used

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The biggest problems

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Benefits of EE business

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Measures for improving EE in the past 5 years

Subject of interest

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Base: those who are interested to analyze measures for improving EE, n=79

What measures were introduced

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Base: those who introduced/plan to introduce measures for improving EE, n=116

Recycling activities

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Intention to turn to greener approach

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Types of investment

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Importance of financial mechanisms and need for specific financial instruments

Need for specific instruments

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Advisory assistance programs

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The biggest obstacles to invest in green technologies

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EU Green Deal

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Inclusion in the emissions trading system

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Base: those who need support with inclusion in the emissions trading system, n=12

Need for support and assistance to companies in Serbia to align their business with the obligations and opportunities arising from:

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Conclusion

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48.6% needs

training or education!

Q&A

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Thank you for your attention!�

Local Touch – Regional Reach

Albania ▪ Bosnia and Herzegovina ▪ Bulgaria ▪ Croatia ▪ North Macedonia ▪ Montenegro ▪ Serbia ▪ Slovenia

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Local Touch – Regional Reach

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Albania

Hoxha, Memi & Hoxha

www.hmh.al

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Bosnia and Herzegovina

Dimitrijević & Partners

www.dimitrijevicpartners.com

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Bulgaria

Dimitrov, Petrov & Co.

www.dpc.bg

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Croatia

Batarelo Dvojković Vuchetich

www.bdvlegal.com

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North Macedonia

Apostolska Aleksandrovski & Partners

www.businesslaw.mk

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Serbia / Montenegro

Bojović Drašković Popović & Partners

www.bd2p.com

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Slovenia

Kirm Perpar

www.k-p.si

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